'Daily deals fatigue' becoming problem for Groupon

LOS ANGELES — Five months after going public with much fanfare, daily deals site Groupon is facing fresh doubts about its credibility and long-term viability.

Despite initial consumer frenzy over its business model that zaps coupon bargains straight to email inboxes, the 3-year-old company has been bedeviled by competition, a lack of profit, questions about its accounting practices and a plunging stock price.

Groupon shares, which closed on its first day of trading at $26.11, eventually soared to a high of $31.14. But the stock closed Friday at $13.12.

Can Group on bounce back?

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"The jury is still out on the long-term sustainability of the daily deals industry," said Herman Leung, an analyst at Susquehanna Financial Group. "There is a daily deals fatigue in the marketplace right now."

The company, which partners with businesses and takes a cut of each coupon it sells, makes a slim profit on deals such as $10 coupons for $20 Italian dinners.

There are concerns that those partnerships with local merchants will continue in large numbers, Leung said.

Many merchants have been burned by customers who use daily deal coupons for discounted goods or services and never return to buy items at full price.

"The rate for the same customer to come back without a Groupon right now is only one in five," Leung said.

Groupon declined to make executives available for interviews. In a statement, the company's chief financial officer, Jason Child, said, "We remain confident in the fundamentals of our business."

A major effort by Groupon to not only grow but also differentiate itself from competitors was to venture into much higher-priced offerings — such as laser eye treatments for more than $2,000. But it underestimated the rate at which customers would return those deals.

"Essentially, more consumers were dissatisfied with big ticket purchases than would have been dissatisfied with a discounted burrito or massage," said Jordan Rohan, an analyst with Stifel Nicolaus.

Other industry watchers were more optimistic. Jeffrey Houston, a technology analyst with Barrington Research Associates, said Groupon's high profile meant that any misstep, no matter how small, became news.

"Longer term, it's really created a new way for small businesses to connect with consumers," Houston said.